Bill Gross's latest investment outlook drops a demographic scare
bomb -- the world's population will grow at a slower and slower
rate over the next few decades, and this will be a 'danger' given
that the developed world is deleveraging at the same time.

The danger today, as opposed to prior deleveraging
cycles, is that the deleveraging is being attempted into the
headwinds of a structural demographic downwave as opposed to a
decade of substantial population growth. ....Today’s
developed economies almost assuredly offer substantially less
population growth than the 1.5% rate experienced over the prior
50 years. Even when viewed from a total global economy
perspective, population growth over the next 10–20 years will
barely exceed 1%.

He even wonders whether capitalism itself is threatened by
declining population growth:

I will go so far as to say that not only growth but
capitalism itself may be in part dependent on a growing
population. Our modern era of capitalism over the past
several centuries has never known a period of time in which
population declined or grew less than 1% a year. Currently, the
globe is adding over 77 million people a year at a pace of 1.15%
annually, but slowing. Still, that’s 77 million more mouths to
feed, 77 million more pairs of shoes to make, 77 million more
little economic units of demand – houses, furniture, cars, roads,
oil – more, more, more. Capitalism, I would assert,
thrives on more, more, and more, but not so well when there is
less or an expectation of less.

Thing is, he failed to mention one very important driver of
growth -- rising living standards, and this is where the world
can expect far more, not less.

While world population growth will slow over the next few
decades, there's still massive room for people in developing
nations to achieve higher living standards. Higher living
standards come through increasing people's productivity, and
while this is extremely challenging in a developed nation like
the U.S. since productivity is high and thus requires new
innovations to take it further, in a developing nation people can
achieve rapid productivity growth simply by using the same
technology and knowledge which is already used in
higher-productivity-per-capita developed nations. Witness China.

For example, right now Americans, Europeans, and Japanese produce
more output per person than most countries in the world thanks to
their countries' established skills, technology, national
organization, and knowledge. If the rest of the world can just
achieve half their output levels, then there's massive room for
economic growth, even without adding in population growth. That's
because economic growth isn't just about having more people on
the earth, as will be clear by flying from New York to Nigeria.

It's not that we completely disagree with Bill Gross's 'New
Normal' view of the world economy going forward, it's that we
think we walked a bit too far out on a limb this week in his
latest commentary. A threat to capitalism? Given that stocks
thrive on capitalism, we think even he disagrees with his latest
view:

The king of bonds is now talking up stocks as a
better long-term investment. He said that as
U.S. Treasury returns fall, investors will have to take more risk
with high-yield bonds, equities and, eventually, real estate.

"If you're talking about the next 10, 15, 20 years,
there's certainly the recognition that assets [stocks, high yield
bonds, real estate] will grow faster in those
categories," he said.